What is Ethereum (ETH +1.98%) worth? That’s the big question facing BitMine (BMNR +1.80%) shareholders today. How you answer that question will likely predict whether you think owning BitMine is a good or bad idea. For me, the fact that BitMine owns nearly 5% of all of the Ethereum created is a signal to sell the stock and avoid the cryptocurrency. Here’s why.
A company’s value is in its business
When you buy shares in a company, you are buying a part of an operating business. The business is what backs the valuation of the stock. Sure, in a worst-case scenario, a company may go bankrupt. But there are still physical assets that can be sold to repay creditors and, if anything’s left, return some value to shareholders. That isn’t the case with a cryptocurrency.
Image source: Getty Images.
The only thing backing Ethereum is people’s belief in its value. If that belief goes away, Ethereum’s value will fall to zero. And there won’t be any assets left over to sell, so there won’t be any value returned to Ethereum owners who rode it the whole way down. That’s not a knock on Ethereum; it is the same basic story for all cryptocurrencies. Only the most aggressive investors should consider buying crypto.
And only the most aggressive investors should consider buying BitMine. The company’s goal is to build up a massive position in Ethereum so investors can buy BitMine stock instead of buying Ethereum. So, for the most part, all that backs BitMine’s business is Etherium, an asset backed only by the belief among Etherium owners that Etherium has value.
Ethereum Price data by YCharts
At this point, BitMine has bought nearly 5% of all of the Etherium that exists. It is generating income from those holdings by “staking” the Ethereum. Technically, the cryptocurrency is called ether, though ether and Entereum are often used interchangeably. But Ethereum is really the name of the blockchain network on which ether is used to pay for network usage. Which is where staking comes in. Staking is a complicated concept, but think of it as something like putting money into a bank account. The bank uses your money and pays you a small amount of interest for that privilege. The upshot is that BitMine’s Etherium hoard isn’t dead money.
Still, the price of the crypto has collapsed this year and basically gone nowhere for the past five years (though in a very volatile fashion). Not surprisingly, BitMine’s stock price has been tracking Etherium lower. Unless you believe deeply in a positive future for this single cryptocurrency, you should probably avoid BitMine.
Bitmine Immersion Technologies
Today’s Change
(1.80%) $0.24
Current Price
$13.56
Key Data Points
Market Cap
$7.6B
Day’s Range
$12.94 – $13.80
52wk Range
$4.07 – $161.00
Volume
66.5M
Avg Vol
39.4M
Gross Margin
57.48%
Dividend Yield
0.08%
BitMine’s investment could be a winner, or not
Essentially, BitMine is making a huge, high-risk bet on Etherium, and you are, too, if you buy the stock. The scarcity created by its ownership position could help support Etherium’s price, with some suggesting it could even spark a rally in the cryptocurrency. Wall Street history is filled with big bets that paid off and made investors wealthy.
But Wall Street’s history is also littered with aggressive investments that blew up, leaving investors with nothing to show for the risks they took. If Etherium remains moribund or falls toward zero, BitMine’s business model would be a big problem. While BitMine is doing exactly what it said it would, that’s exactly why most investors, particularly those with a conservative bias, should probably stay away from this stock and the cryptocurrency market it increasingly dominates.
